The nonclinical research business is much harder to consolidate than the contract clinical research industry, which is dominated
by a few large contract research organizations (CROs). However, the realities of drug development are driving a new wave of
consolidation activity among nonclinical CROs.
Thanks to a surge in mergers and acquisitions, two principal business models have emerged for nonclinical services: the "category
killer" and the "integrated clinical supply chain." The two models embrace different strategies and target different customers.
Category killers build businesses that dominate specific service segments—like Home Depot's domination of the home improvement
segment. Category killers are much larger and have more global capabilities than their smaller competitors, and they seek
a competitive advantage from their economies of scale, specialization, and global scope. They appeal to major biopharmaceutical
companies, which increasingly integrate vendors into their clinical and commercial supply chains.
Companies adopting the integrated clinical supply chain model offer clients a simplified, accelerated path from benchtop to
clinic; they offer a "one-stop shop," providing process development, clinical trial material manufacture (for the drug substance
and drug product), analytical testing, clinical packaging, and distribution. These integrated service providers target smaller
biopharmaceutical companies focused on demonstrating proof-of-concept in early development as a basis for additional fundraising
or out-licensing of a drug candidate.
Industry consolidation is also driven by private equity investors seeking to enter the drug development services business.
Private equity investors are particularly attracted by the opportunity to "roll up" smaller companies into larger business
units that might eventually be taken public. The fragmented nonclinical services industry appears well suited to that roll
The archetype of the nonclinical "category killer" is Fisher Clinical Services (Allentown, PA,
http://www.FisherClinicalServices.com/), which dominates the clinical packaging and distribution business. Starting with its 2000 acquisition of Covance's clinical
packaging operations, Fisher Clinical has built a business with revenues that PharmSource (Springfield, VA,
http://www.pharmsource.com/) estimates to be $250 million+; the company has also added operations in analytical services and biological sample storage.
Fisher Clinical recently acquired Clintrak Pharmaceutical Services (Bohemia, NY,
http://www.clintrak.com/), and its wholly owned clinical packaging subsidiary, Acculogix (Bristol, PA,
http://www.acculogix-usa.com/). Clintrak has been a long-time leader in production and a supplier of labels for clinical trial materials; Acculogix is
recognized for the innovative software it developed to manage and track clinical packaging processes. In 2005, Fisher clinical
acquired McKesson BioServices (now Fisher BioServices), a leading provider of clinical supplies distribution and biological
specimen storage to the National Institutes of Health; and Lancaster Laboratories, a provider of analytical chemistry and
Fisher Clinical's strategy reflects the increasingly global nature of late-stage clinical research (clinical packagers generate
the largest share of their revenues from large Phase 3 clinical trials) and efforts by big pharma companies to consolidate
their supply base. To be a first-tier player, a clinical packager must have a global network of distribution points, sophisticated
logistics knowledge (including systems for tracking inventories and shipments), and global regulatory expertise. Only a few
companies have the scale and financial backing to meet those criteria.
SGS BUILDS LAB NETWORK
SGS of Geneva, Switzerland, seeks to become a "category killer" in the analytical testing arena. Although the company maintains
a low profile in the North American pharmaceutical marketplace, it is a significant player globally. SGS's Life Science Services
business had 2005 revenues of CHF 125 million ($96 million). Revenues grew 18% last year, largely through organic growth,
including 20% growth in its North American analytical labs.
The organization operates in a wide range of industry segments, including automotive, environmental, oil and gas, food, and
other consumer segments.